‘Super Deduction’ to spur investment
The chancellor’s new ‘super deduction’ tax break is set to spark a wave of investment by British businesses, providing a timely boost to the economy, according to a new Lloyds Bank survey.
Four in ten (39%) of 1,200 firms surveyed said they will invest more in new equipment in the next 12 months as a direct result of the policy, which was announced by Rishi Sunak in the Budget in March. This figure rises to 51% among manufacturers.
Of all businesses looking to capitalise on the super deduction, 42% said it will prompt fresh investment in their business with the remaining 58% saying they will bring forward investment previously planned for a later date so they can access the scheme.
The chancellor’s initiative, which is available until 31 March 2023, allows companies to deduct 130% of the cost of new investment from taxable profits. It means companies can reduce their tax bills by up to 25p for every £1 invested.
The findings suggest businesses are planning an investment spree that will help the UK’s economic recovery. It comes after Lloyds Bank’s latest Business Barometer showed overall confidence among UK firms reached 29% in April – a two-and-a-half-year high – boosted by the reopening of non-essential retailers and the Covid-19 vaccine rollout.
Meanwhile, there are now more businesses planning to recruit than shed jobs, with this measure at its highest level for 14 months. A quarter (25%) of firms expect to award pay increases of 2% or more in the next 12 months, compared to 17% in March.
Paul Gordon, managing director for SME and Mid Corporates, Lloyds Bank Commercial Banking, said: “The super deduction was one of the most eye-catching parts of Rishi Sunak’s Budget and on the evidence of our survey it is working as intended. Businesses appear to have been prompted to invest and even if some are bringing forward planned investment to capitalise on the tax break, this should provide a quicker and sharper boost to the economy, which is crucial.
“While the evidence is that consumer sentiment is rising as vaccines are rolled out across the country, we also need business investment to rise. With data suggesting that firms plan to create jobs and increase pay, there are reasons to be optimistic about the state of the UK economy.
“As ever, we stand ready to support businesses in playing their part in Britain’s recovery.”